The euro-dollar pair has been declining for the fourth week in a row: if at the end of March traders were approaching the boundaries of the 1.1200 mark, today sellers have come close to the 6th figure. Yesterday, EUR/USD bears tested this price area, reaching 1.0697, but retreated quickly enough, ending the trading day at the base of the 7th price level. In general, bearish sentiment continues to prevail in the pair: corrective pullbacks are limited, while downward impulses allow sellers to open new price horizons, pushing through powerful support levels.
The dollar is supported by several fundamental factors at once. In the foreground is the US Federal Reserve, which demonstrates readiness for aggressive actions in the context of tightening monetary policy. It would seem that an increase in the interest rate by 50 basis points is a settled issue. At first, this was discussed in the form of assumptions, but then many members of the Fed "directly" supported this idea. After all, Fed Chairman Jerome Powell actually announced a 0.5% rate increase last week. However, despite the obvious foregone conclusion of this issue, the dollar continues to enjoy steady demand. Hawkish expectations keep the greenback afloat, allowing EUR/USD bears to conquer new price territories. In my opinion, this is due to two factors.
Firstly, there are still rumors in the market that the regulator may decide on a 75-point rate increase. The probability of implementing this scenario is quite small (at least in the context of the May meeting), but this option cannot be completely excluded. As you know, the corresponding initiative was announced by St. Louis Federal Reserve Bank President James Bullard, who this year has the right to vote in the Committee. According to the CME Group, the regulator may still decide on a 75-point increase – however, not at the May meeting, but following the results of the June meeting. In any case, this issue remains on the agenda, and this is quite enough for dollar bulls to feel very comfortable in all pairs of the major group, and even more so in pairs with the euro.
Secondly, the US Federal Reserve plans to launch a quantitative tightening program in the near future, gradually increasing the volume of balance sheet cuts to 95 billion per month. Of these, 60 billion will fall on treasury bonds, and 35 billion on mortgages. Judging by some signals, the regulator may begin to reduce the balance in June.
Against the background of such prospects, the yield of 10-year US Treasury bonds has already come close to the three percent mark, dragging the greenback. Geopolitical tensions, as well as the difficult situation with the coronavirus in China, only fuel traders' interest in a safe dollar.
The euro, in turn, is forced to move in the wake of the greenback. On the one hand, there are rumors in the market that the ECB may raise interest rates already at the July meeting. But on the other hand, traders ignore these signals, given the position of ECB President Christine Lagarde. Lagarde said during her last speech that the ECB will "probably" complete asset purchases in July or August and will start raising rates later this year. Earlier, journalists were interested in Lagarde – what could be the time range from the end of the incentive program to the increase in rates? She answered this question rather vaguely, saying that it was "about weeks or months."
Thus, the divergence of the positions of the Fed and the ECB pushes the EUR/USD pair down, especially against the background of increased anti-risk sentiment in the foreign exchange market. Given the prevailing fundamental background, sales for the pair are still a priority. It is advisable to use any corrective pullbacks to open short positions.
Technology says the same thing. The EUR/USD pair is in a descending channel. The price shows a pronounced downward trend, which is confirmed by the Ichimoku indicator, which has formed its bearish signal. Also, the price on all higher timeframes (H4, D1, W1, MN) is located either on the lower line or between the middle and lower lines of the Bollinger Bands indicator, which is in the extended channel. The support level (the target of the downward movement) is the lower line of the Bollinger Bands indicator on the daily and weekly charts – this is the 0.0660 mark. In this price area, it would be advisable to lock in profits and take a wait-and-see position.